Not so pacific
Unfortunately, we are contemporary with a company that will be a case study in business schools in the future. PG&E (Pacific Gas & Energy) case has all the ingredients that illustrate how forgetting the rest of stakeholders is the best way of abandoning shareholders and value creation in the long run.
We quote CNBC’s article of this last Friday (25/10/2019) as it perfectly summarizes the shameful impact that a poorly managed company may have in our society (communities, environment, customers, public funds) and its shareholders:
“Shares of PG&E plunged to $5 on Friday, a 30% decline that could hamper the company’s attempt to make its way out of bankruptcy. The stock decline followed reporting that PG&E’s transmission lines were active in the area where the Sonoma County fire sparked. The company’s stock has declined by almost 90% over the past 12 months.
PG&E’s equipment has sparked 19 major fires in 2017 and 2018, and the company was blamed for last year’s Camp Fire that destroyed the town of Paradise and killed 86 people.
The weekend outage is the second major shutoff by PG&E this month, after the company two weeks ago cut power to nearly 2 million people to avoid fires sparked by its electricity lines. Widespread dry, hot and windy weather is expected to affect the utility’s service Saturday evening through Monday.”
News like this one should help us to be more conscious at least about 2 points: On the one hand, the importance of engaging and guiding companies towards good practices, as the cost of not doing it is real and painful for all parties, also shareholders. On the another hand, the fact that most companies are performing according to quite decent standards, being this kind of news just painful outliers to learn from.
Nevertheless, our experience with asset managers, main providers of capital in quoted companies, indicates that there is still an important part of these asset managers that handle ESG risks in the same way as hot potato game. Just expecting not to be the ones invested in the company when the scandal bursts. Clearly, not the best example of sophistication in their investment strategies, as they pompously sell to their investors.
Caixabank, Naturgy, Bankia, Iberdrola y Repsol: ganadores de los Alembeeks Awards 2018
Alembeeks Group, empresa española líder en
asesoramiento al voto en juntas de accionistas (proxy advisor), anuncia la
lista ganadora de compañías españolas en reconocimiento a su actividad de
divulgación corporativa durante 2018.
La consultora española en gobierno corporativo Alembeeks Group otorga a Caixabank, Naturgy, Bankia, Iberdrola y Repsol galardones en cinco categorías relacionadas con la información financiera y de gobierno corporativo proporcionada a sus accionistas.
La iniciativa Alembeeks Awards tiene por objetivo distinguir a aquellas compañías del Ibex-35 que siguen las mejores prácticas del mercado en lo que a divulgación de información a sus accionistas se refiere.
Las empresas ganadoras de los Alembeeks Awards 2018
han sido las siguientes:
- CaixaBank. Mejor divulgación de información financiera (Best Financial Disclosure).
- Naturgy. Mejor divulgación de información no-financiera. (Best Non-Financial Disclosure).
- Bankia. Mejor divulgación de información de gobierno corporativo (Best Governance Disclosure).
- Iberdrola. Mejor material de apoyo en Junta de Accionistas (Best Proxy Materials).
- Repsol. Mejor uso del canal digital en la actividad de Relación con Inversores (Best IR Digital Disclosure).
El año pasado los ganadores en estas mismas categorías fueron Caixabank, Acciona, Bankinter, BBVA y Ferrovial.
Alex Bardaji, Director de Alembeeks Group, comenta: "La buena acogida que tuvieron los Alembeeks Awards por el mercado el año pasado nos anima a seguir con la iniciativa. El analizar un gran número de compañías a nivel de gobierno corporativo nos otorga una posición privilegiada para ver por dónde van las tendencias del sector y tener identificadas las mejores prácticas".
Con esta iniciativa, que celebra este año 2019 su segunda edición, Alembeeks Group intenta promover la eficiencia y la transparencia entre los diferentes actores del mercado, fomentando un marco favorable para el desarrollo de la actividad empresarial y de la sociedad en su conjunto.
Los Alembeeks Awards utilizan como referencia toda
la información financiera y no-financiera publicada por las compañías del
Ibex-35 en relación al último año 2018: Informe Anual, Informe de Gobierno
Corporativo, Informe de Remuneración a Directores, Informes Integrados,
Presentaciones a Accionistas e informes varios para la Junta General de
Accionistas entre otros contenidos disponibles.
El jurado está formado por los analistas de gobierno corporativo de
Alembeeks Group, que son profesionales internacionales especializados en gobierno
corporativo, reporting financiero y no-financiero, así como en materia de ESG.
Alembeeks Group es una consultora en materia de gobierno corporativo que da apoyo a inversores institucionales y emisores de capital. Nuestros servicios ayudan a nuestros clientes a mejorar su gobernanza, implicación accionarial y su actividad operativa mediante el uso de nuestras soluciones tecnológicas, así como informes de representación y servicios de consultoría en buen gobierno.
Alembeeks participa en el encuentro de Forética sobre activismo accionarial
Paola Gutiérrez Velandía, Senior Advisor en el área de Governance & Stewarship de Alembeeks, participó el pasado 16 de julio de 2019 en el panel de expertos organizado por Forética junto a representantes de Cuatrecasas, Bankia, Aena y Leroy Merlin en el acto de presentación del informe "Más activos, más sostenibles: Una nueva era en el activismo accionarial".
El evento, que tuvo lugar en el Aula Magna del Instituto de Empresa en
Madrid, fue inaugurado por la Vicepresidenta de la CNMV, Ana María
Martínez-Pina, y el Secretario General del Tesoro del Ministerio de Economía y
Empresa, Carlos San Basilio.
El acto central del evento fue la presentación del informe "Más
activos, más sostenibles: Una nueva era en el activismo accionarial" por
Jaime Silos, Director de Desarrollo Corporativo de Forética. A través de este
estudio, el Clúster de Transparencia, Buen Gobierno e Integridad, compuesto por
más de 50 grandes empresas, expuso cómo el creciente interés de los inversores
por el activismo con criterios ESG es consecuencia de la conexión de dos
grandes tendencias en el mercado de gestión de activos: el activismo
accionarial y la inversión sostenible.
Durante panel de expertos, Paola Gutiérrez Velandía detalló los principales aspectos del anteproyecto de ley que traspone la directiva UE 2017/828, en relación con la implicación a largo plazo de los accionistas, que son la identificación de los beneficiarios finales y el impacto de la política de implicación para las gestoras de activos.
Manuel Gutiérrez-Mellado, Head of Business Development de BlackRock Iberia, presentó la visión de esta importante gestora de activos en relación con la implicación y participación en las empresas en las que invierten.
El encuentro sirvió además para profundizar en el importante rol que juegan los criterios de transparencia y buen gobierno en la sostenibilidad de los mercados y las exigencias de consideración de los aspectos extra financieros por parte de inversores, sociedad y organismos de control.
Alembeeks, como consultora en gobierno corporativo, da soporte a inversores institucionales en la creación de políticas de implicación y en el asesoramiento al voto en juntas de accionistas siguiendo los principales mejores prácticas del mercado.
Voting rights policy in Luxembourg: 5 key aspects to keep in mind
The CSSF Circular 689/2018 establishes that investment fund managers (IFM) must develop an adequate and effective voting rights policy (defined in the circular as "a strategy"), for determining when and how voting rights are to be exercised.
With these requirements, the CSSF
develops Article 23 of CSSF Regulation 10-4 and Article 37 of Delegated
Regulation (EU) 231/2013 and partly implements the Shareholder Rights Directive
II (SRD II).
In 2007, the European Parliament
approved the Shareholder Rights Directive (SRD) to ensure better protection of
the exercise of rights of shareholders in listed companies. In 2017, the
revised Shareholder Rights Directive (SRD II) modified some aspects of the SRD
and described new obligations for EU Asset Managers, Institutional Investors,
Intermediaries, Proxy Advisors and Listed Companies.
In summary, Management Companies and Asset Managers based in Luxembourg must develop a voting rights policy. In some cases, they may refer either to a voting rights strategy developed in this regard by the group to which they belong or to recognised international standards.
5 aspects a voting rights policy must include:
1 – Regulatory Framework: It is a good practice when writing a voting rights policy to refer to all the set of rules. Defining this regulatory framework will help you also to define the current obligations and the follow up of future modifications.
2 – Decision-making process: Especially in the case of Luxembourg, there are certain scenarios where the Investment Management activity might be delegated to a third party. In some of these cases, it could be delegated also the exercise of voting rights. In other cases, the Management Company could be responsible for exercising voting rights. The voting rights policy should cover the different decision-making processes that a Management Company may carry out at the same time depending on the delegated functions for each investment vehicle.
3 – Voting Scope: This is one of the tricky issues. There are different metrics and approaches to defining the voting scope: aggregated investment in a certain company; consider the percentage of the participation within the capital of a single company, top-weighted positions for each fund, number of appearance of a certain company in all managed portfolios, covering only those with activity in process of M&A or capital modifications, … What we have found is that each Management Company defines its own scope considering internal strategies.
4 – Voting Principles and Voting Guidelines: The corporate governance activity covers a wide set of aspects and variables that might be asked for voting in each Shareholders’ Meeting. Some of them are related to the board policies and its directors, the executives' remuneration, the modifications of the capital structure or the shareholders' rights, among other issues. As the knowledge is very specific, the advice of a corporate governance expert and proxy advisor like Alembeeks is key to ensure your voting rights exercise is not misaligned with your interests' as a shareholder.
5 – Conflicts of interest: Within the financial sector is common that shareholders may have some links with some listed companies. It will be a well employed time to carry out an internal analysis detecting these conflicts of interest and a proper way to manage them.
Alembeeks is a proxy advisor and corporate governance consulting firm. We serve asset managers and institutional investors mainly in Luxembourg and Europe. We help our clients to define voting rights policies and clear voting strategies in order to vote well-informed in the Shareholder’s meeting of the companies where they invest in.
Alembeeks provides asset managers in Luxembourg the tools for ensuring transparency and supporting documentation of all their voting activities by using our VotingCloud platform.
COP24: el cambio climático se integra en la estrategia de las empresas
Artículo de José Luis Morales.
Publicado originalmente en la Revista Tècnica, del Col·legi d'Economistes de Catalunya.
El calentamiento global es uno de los mayores riesgos al que se enfrentan las empresas, las economías y las sociedades, con implicaciones para la estrategia, la reputación y la resiliencia de las compañías. Revisaremos algunas de las principales iniciativas destinadas a guiar los esfuerzos de mitigación y adaptación al cambio climático.
La
COP24
del pasado mes de diciembre en Katowice (Polonia), una de las principales áreas
de extracción de carbón de Europa, ha sido la más importante desde la COP21 de
París, dando como resultado casi 200 países signatarios de un libro de reglas
para la implementación del Acuerdo Climático de París.
En
octubre, el Grupo Intergubernamental de Expertos sobre el Cambio Climático
(IPCC) publicó un informe especial para exponer los importantes beneficios que
reportaría la limitación de los impactos del calentamiento global a 1,5ºC,
señalando que el mundo solo dispone de 12 años para evitar los peores impactos
del cambio climático.
Y,
poco antes de la Cumbre de Katowice, los CEOs de las grandes compañías globales
integrantes de la Alliance of Climate Action reunidas por el Word Economic
Forum, publicaron una carta
abierta dirigida a los gobiernos, enfatizando la
necesidad de una mayor colaboración para acelerar la implementación de
mecanismos efectivos de fijación de precios del carbono, así como políticas que
incentiven la inversión baja en carbono e impulsen la demanda de soluciones de
reducción de carbono.
La cantidad de proyectos de fijación de precios del carbono iniciados en el mundo se ha duplicado desde 2012, lo que aumenta el coste para la ineficiencia del carbono en las empresas. Los costes directos del carbono afectan a todas las compañías, pero el impacto en los beneficios depende del potencial de cada compañía para reducir sus emisiones, así como en su capacidad para transferir esos costes al consumidor.
En
la COP24, la Comisión Europea compartió su 2050
Net-Zero GHG Climate Strategy, iniciativa que
confirma el liderazgo de la UE en la transición a una economía baja en carbono,
y que va a afectar a todas las empresas. Además, la Hoja
de Ruta de la Comisión Europea sobre Finanzas Sostenibles
recibió grandes elogios.
La
Cumbre confirmó las recomendaciones de la Task Force on Climate-Related Financial
Disclosures (TCFD) como el marco internacional
de comunicación para que las empresas puedan presentar una divulgación más
consistente de los impactos financieros derivados de los riesgos relacionados
con el clima, y también de las oportunidades.
Las
partes interesadas de estas compañías (inversores, bancos, compañías de
seguros…) están solicitando dicha información, ya que una deficiente asignación
de los fondos invertidos (debido a factores climáticos no contabilizados)
representa un riesgo importante para los mercados financieros. Las directrices
de TCFD pueden evaluar mejor dichos impactos e impulsar la transformación hacia
una economía sostenible y baja en carbono.
Los grandes inversores institucionales están teniendo cada vez más en cuenta el riesgo climático en sus decisiones de inversión, y están avanzando de manera decisiva en sus enfoques para la valoración del impacto. Javier Garayoa, director general de Spainsif, la plataforma de encuentro y referencia en materia de inversión sostenible y responsable en España, destaca el excelente momento que vive la inversión sostenible, y afirma que “no es posible un futuro que no sea sostenible”.
Los
inversores deben saber cómo invertir en una economía en transición. En la
composición anual del Dow Jones Sustainability Index (DJSI), por ejemplo, el
criterio de estrategia climática es uno de los más de 20 criterios que
conforman la evaluación completa compilada por DJSI RobecoSAM.
Con
una mayor transparencia, los mercados financieros no solo deberían poder
comprender y evaluar mejor la incertidumbre financiera relacionada con el
clima, sino también las oportunidades de inversión.
Este
problema de transparencia es el que Reporting Integrado
está diseñado para solucionar. A medida que las compañías buscan capitalizar
las vastas oportunidades financieras y de reputación de emprender acciones
climáticas consistentes, un número creciente de empresas está evolucionando
desde los informes de sostenibilidad, en favor un informe integrado orientado
hacia el futuro, vinculado a la estrategia y al modelo de negocio, y
fundamentado en que la sostenibilidad puede actuar como un conductor para el
crecimiento y la creación de valor a largo plazo.
También
las compañías integradas en Climate Action +100
mostraron su compromiso con la acción climática: Shell
anunció su plan de reducción de carbono, mientras que la eléctrica Xcel
Energy y Maersk
anunciaron que reducirían sus emisiones de carbono a cero para el año 2050.
La
Two
Degrees Investing Initiative pretende crear una
metodología que pueda convertirse en el estándar para que las grandes entidades
de crédito midan el impacto climático de sus carteras de préstamos. De esta
manera, las entidades vincularán las tasas de interés con el desempeño en
sostenibilidad, para alinear su cartera con el escenario de 2ºC del Acuerdo
Climático de París.
La integración de las urgencias climáticas en el sistema financiero y regulatorio, va a tener implicaciones determinantes para los modelos de negocios, la estrategia, el gobierno corporativo y el reporting de todas las compañías.
Las grandes corporaciones globales ya están liderando el camino para reducir sus emisiones, pues son las que disponen de los recursos y las que soportan la presión. Sin embargo, son las pequeñas y medianas empresas las que pueden encontrarse con mayores dificultades para evitar que el cambio climático afecte negativamente a su negocio, y para hacer frente a la disminución en la demanda de productos y servicios intensivos en carbono. Tal vez solo cuenten con unos pocos empleados, pero representan el 99 por ciento de las compañías.
( José Luis Morales és Partner de Alembeeks y Miembro de la Comissió d'Economia i Sostenibilitat)
Evento Spainsif: Prácticas de buen gobierno: engagement y voting
Como asesores de voto en España, participaremos en el evento organizado por Spainsif y el Instituto de Empresa (IE) sobre las prácticas de buen gobierno relacionadas con el compromiso accionarial y el voto en junta de accionistas que se celebrará en Madrid el próximo martes 19 de febrero 2019.
¿Cómo pueden los inversores institucionales influir en las políticas de buen gobierno de las empresas? ¿Qué impacto tiene el buen gobierno y el compromiso accionarial en la estabilidad de los mercados financieros? ¿Cuál es la importancia y características de las estrategias de inversión socialmente responsable al respecto? ¿Qué impacto tiene el aumento de la “inversión pasiva” en el buen gobierno de las compañías cotizadas? ¿Está adaptado el proceso de votación en las JGA para que los ahorradores finales vean reflejadas sus preferencias en temas ASG?
Esperamos despejar éstas y muchas otras cuestiones durante el debate.
Spainsif es el principal foro en España en la promoción de la inversión sostenible y responsable, compuesto en la actualidad por más de 70 miembros.
La apertura inicial del evento estará liderada por el Profesor D. Joaquín Garralda, Decano de Ordenación Académica de IE Business School y por D. Jaime Silos, Presidente de Spainsif.
Posteriormente, participaremos en el debate los siguientes invitados:
- Profesor D Joaquín Garralda, Decano de Ordenación Académica del IE Business School
- D. Manuel Álvarez, Secretario General de OCOPEN
- D. Andrés Herrero Martín, Unidad de Previsión Social de UGT
- D. Iván Diez, Country Manager, Groupama Asset Management
- D. Alex Bardají, Director de Alembeeks Group
Las inscripciones pueden realizarse desde este enlace.
Esperamos encontraros en el evento.
M&A transactions and shareholders: Bristol-Myers case
Shareholders’ voting rights cannot be forgotten in M&A transactions. They are a key element for the achievement of the deals where quoted companies are involved. With this post, we want to highlight a current mismatch in price related to the uncertainty of the will and vote of shareholders involved in a recently announced M&A transaction.
Bristol-Myers Squibb (BMY) began this January 2019 announcing a massive $74 billion acquisition of Celgene (CELG). This makes it the third largest M&A transaction in pharma’s history after 1999 Pfizer/Warner-Lambert and 2000 Glaxo Wellcome/SmithKline Beecham.
If the cash-and-stock transaction closes, Celgene shareholders will receive one BMY share and $50 in cash for each Celgene share. Celgene shareholders will also be remunerated with one tradeable Contingent Value Right ("CVR") for each share of Celgene, which will entitle its holder to receive a one-time potential payment of $9 in cash upon FDA approval of all three of ozanimod (by December 31, 2020), liso-cel (JCAR017) (by December 31, 2020) and bb2121 (by March 31, 2021), in each case for a specified indication.
Based on the closing price on January 25, 2019, of $48,93 BMY per share, the cash and stock consideration to be received by Celgene shareholders at closing is valued at $98,93 per Celgene share and one CVR. Nevertheless, Celgene shares closed at this same day at $87.62. This represents an 11,4% disparity in price and it is mainly caused by the risk of deal-refusal by the shareholders of both or one of the companies.
Though the executives and board of directors of both companies have promoted and supported the transaction, the market is discounting the risk of shareholders’ opposition to go forward. Especially from the BMY side, as they are the ones paying the biggest part of the party.
A significant portion of the $74 billion acquisition value will be funded through a Bristol-Myers Squibb dilutive issuance of new shares to Celgene’s shareholders and the rest will be funded by new debt. When completed, Bristol-Myers Squibb shareholders are expected to own about 69% of the company, and Celgene shareholders are expected to own roughly 31%.
On top, BMY has already confirmed that is taking out a $33.5 billion bridge loan to help finance its purchase of Celgene. This loan, which will be underwritten by Morgan Stanley Senior Funding, Inc. and MUFG Bank Ltd., will rank as the seventh largest bridge facility on record according to Bloomberg.
Once completing the acquisition, Bristol-Myers Squibb will also have to include Celgene’s net debt (which stood at $18 billion at the end of the third quarter) on their new combined balance sheet. After combining this with Bristol-Myers Squibb’s current net cash position and the approximately $35 billion cash acquisition outlay, it leaves the new combined company’s net debt approximately at $48b according to company statements. This makes that net leverage after the deal will be 2.8 times debt to EBITDA and Moody’s and S&P put the company’s ratings on review for downgrade after the announcement.
The purpose behind this transaction is to create an innovative biopharma leader, to enhance leadership positions across the new combined portfolio and to benefit from operational and commercial synergies, according to BMY CEO. Nevertheless, the price divergence shows that investors remain cautious about the outcome of the voting process in each company general meeting.
In the end, shareholders will decide and fears will be either corroborated or vanished.
7 takeaways from the Unilever U-Turn
During these last months, we have followed up the battle for changing the governance and structure of Unilever. This case offers 7 takeaways for IR departments that we think are worth sharing.
The actions carried out by the Unilever board, some UK institutional investors, government lobbyists and the economic and conventional press have seasoned one of the stories that have captured great interest among the specialists in the corporate governance sector during this year.
Unilever is one of the world’s leading consumer goods companies. It was formed by the merge of operations of Dutch Margarine Unie and British soapmaker Lever Brothers in 1930. Since then, the Anglo-Dutch consumer goods group has operated as a dual-listed company. In this case, it consists of Unilever PLC, based and listed in London, and Unilever N.V., based in Rotterdam and listed in Amsterdam. The two companies operate as a single business, with a common board of directors, adopt the same accounting principles and pay dividends to their respective shareholders on an equalized basis. N.V. and PLC.
On 15 March 2018, the board of Unilever announced the intention to simplify the Unilever Group’s dual-parent structure under a new single holding company that should be based in Rotterdam. This process was termed as “Simplification”. The Extraordinary General Meetings to approve this change were planned for the 25 and 26 October 2018.
In Alembeeks Group, as proxy advisors, we analyzed the proposal and advised our clients to vote FOR as we agreed that the proposed structure improved some of the limiting and unequal conditions that are currently applicable to existing Unilever shareholders. We assessed also that the new simpler structure also unlocks certain constraints that might help the company attain a fair value and a greater flexibility to grow in the future.
Nevertheless, after a rebellion lead by main UK based asset managers – Columbia Threadneedle, Aviva Investors, M&G, L&G, and Schroders – the Unilever board decided to U-turn and withdrew the proposal.
In our opinion, Unilever major U-turn offers at least 7 takeaways for IR departments that can be applicable to other companies when thinking about voting major changes:
- A “good proposal” may have also detractors. There are several reasons for having opposition in a proposal that technically and according to all the corporate governance handbooks is a clear vote “FOR”. Shareholders base is not uniform, and shareholders' interests are not always aligned. Shareholders may have conflicts of interest in their different investment horizon approaches towards the company. Some proposals may look for a better long-term competitiveness but might imply a short-term setback that some shareholders are not willing to bear. In this Unilever case, the fact of falling from the FTSE 100 had been claimed as a major argument to vote against the proposal among detractors. The fact that the company was gaining flexibility to adapt to the market and improving its governance structure was not considered among those short-term oriented shareholders. Nevertheless, all shareholders have the right to vote according to their own views, which means that all may be right at the same time, voting for different options.
- A proposal should have no weak points at all. The weakest side of a proposal will be the most attacked and it will give a strong argument against it. In this Unilever case, it was the pending resolution of the Netherland’s government about the abolition of the dividend tax. It created fear not only among UK shareholders, but it also created rebuke among some Netherland stakeholders.
- The content of a proposal must be perfect, but also must be the timing. In this case, the proposal was planned during a period in which the Brexit tensions were in their zenith. It made that this issue fell in the scope of sensationalism. The UK press has found a gold mine with it, and it has been largely commented not only in the economic but also in the yellow press.
- Gaining the message battle. Most of the media was labeling the Unilever proposal as a matter of “Going Dutch”, “Leaving UK”, “Moving HQ from London to Rotterdam”, … Efforts must be made to explain the proposal clearly. Sometimes it is difficult to defend some complex arguments against simplistic ones. But this shouldn’t be an excuse. It also may happen that old stories like remuneration or unfinished problems came up and are mixed with the new proposal. In this sense, to face major changes the least unfinished problems, the better.
- Earlier shareholder engagement is key to endeavor major changes. By nature, shareholders are not prone to like changes. Engaging shareholders beforehand entails the same efforts than doing it after formally announcing the proposal. In the Unilever case, the board and the management should have paid more attention to this point, as this late withdrawal leave them in a weak stance for the next general meeting.
- Pay attention to the stakeholders. Stakeholders may have an indirect but important role in voting. This may come in a wide range of ways depending on the subject. In the case of Unilever, UK fund managers had a special strain from their clients and UK citizens to reveal against the proposal, especially as heated by the UK press. In some sense, this is a good thing, as it probably aligns fund managers vote with the will of their clients. Nevertheless, this ensures a non-robust voting policy.
- Beware of voting hurdles. In this case, Unilever needed a 75% majority of the UK votes but also a simple majority among all UK shareholder by number. On the one hand, institutional shareholders are more sensitive to fulfill their fiduciary responsibilities as regulators are pushing in this direction. On the other hand, retail investors are more conscious of their voting rights and their shareholder status than in preceding decades. The era of delegating the vote to the management is over.
In Alembeeks Group, as corporate governance consultants and proxy advisors, we follow up the Annual General Meetings of the listed companies in which our institutional clients invest in and provide them reports to vote in a well-informed manner. We also help listed companies improve their disclosure and corporate governance transparency.
Shareholder activism and coffee
If you are having a break, sipping coffee, but you cannot stop thinking about shareholder activism, we give you a compelling reason to explain your case.
In February 2017 Reuters reported Sachem Head Capital Management LP, activist investor holding 3.38 percent stake, wanted Whitbread’s management to examine a breakup as a way to boost the value of its individual businesses.
In April 2017 a unit of U.S. activist hedge fund Elliott Management, recognised activist investor, said it increased its position and held the largest stake (over a 6 percent) in Whitbread Plc. Elliott stressed that wanted the company to split its two divisions, Costa Coffee and hotels chain Premier Inn.
Last Friday 31st August 2018 Whitbread’s CEO announced the sale of the Costa Coffee chain to Coca Cola Co. for 3.9 billion pounds ($5.1 billion). It’s close to the 3.5 billion pounds to 4 billion pounds the division was estimated to be worth when investors first started to agitate for a breakup of Whitbread two years ago. As Costa’s performance stalled during last quarters, most analysts had since cut their estimate of its value to between 2 and 2.5 billion pounds. The agreement with Coca Cola Co. has been the preferred formula in front of the IPO alternative which had been considered.
According to Bloomberg data, the purchase values the Costa Coffee shops at about 16.4 times 2018 Ebitda — more than the 12.9 times multiple of Starbucks Corp.
According to some analysts, this valuation should make Whitbread’s CEO position more secure after she came under pressure from the two activist investors as Whitbread shares had slipped 12 percent since she took over in December 2015 — trailing the 21 percent gain in the FTSE 100 Index over the same period. Friday’s announcement sent the stock up by almost 20 percent.
Whitbread said it expects to return the “significant” majority of the money to shareholders, and the rest to reduce debt and contribute to its pension plan (see presentation of the sale) with the 3.8 billion pounds of net proceeds from the sale. In the coming months, it will be interesting to look at the stance of the two main investors in relation to the allocation of this fresh cash.
With this transaction Coca Cola Co. diversifies its struggling sugar drink business. “Costa gives Coca-Cola new capabilities and expertise in coffee, and our system can create opportunities to grow the Costa brand worldwide,” said Coca-Cola President and CEO James Quincey. “Hot beverages is one of the few segments of the total beverage landscape where Coca-Cola does not have a global brand. Costa gives us access to this market with a strong coffee platform.” Read Quincey's commentary on the announcement.
Once again, we have witnessed with this transaction, an example of how voting power has an impact in the evolution and the strategy of public companies. And how coffee and shareholder activism are, somehow, connected.
Dual class structure: are we aligned?
The dual class structure is one of the topics that is repeatedly commented due to the Facebook, Alphabet (Google) and other tech companies' exposure in the media. But they are not the only ones.
We would like to share with our readers a recent article by Anita Anand, University of Toronto – Faculty of Law. We have found the article is very educational about the dual class share structures and its pros and cons.
In a typical public company, shareholders can elect the board, appoint auditors, and approve fundamental changes. Firms with dual class share (DCS) structures alter this balance by inviting the subordinate shareholders to carry the financial risk of investing in the corporation without providing them with the corresponding power to elect the board or exercise other fundamental voting rights.
This article fills a conspicuous gap in the scholarly literature by providing empirical data regarding the governance of DCS firms beyond the presence of sunrise and sunset provisions.
The summary data suggest that the governance of DCS firms is variable. A large proportion of DCS firms have no majority of the minority voting provisions and no independent chair. By contrast, almost half of the DCS firms have a sunset clause and a majority of independent directors. Finally, just under one-third of DCS firms have change of control provisions over and above existing law.
On the basis of this evidence, this article argues against complete private ordering in favor of limited reforms to protect shareholders in DCS firms including: mandatory sunset provisions, disclosure relating to shareholder votes, and buyout protections that would address weaknesses inherent in DCS firms.
We also share a short article published at Bloomberg, which we find relevant as displays a couple of charts about the evolution of this capital structure during the last decades. We hope you find this information useful.